AIR NZ INCREASES STAKE AS VIRGIN PROFITS DROP

Written on the 11 February 2011

AIR New Zealand (LIZ) has boosted its shareholding in Virgin Blue (VBA) to 14.99 per cent, costing the cross-Tasman competitor $145 million after approval from the Foreign Investment Review Board (FIRB).

Last year the Australian Competition and Consumer Commission (ACCC) was reluctant to approve a proposed resource-sharing alliance between the two companies, but allowed the agreement on the condition routes and number of seats were maintained and grown.

Virgin Blue also has foreign ownership of 26 per cent from Virgin Group in the UK.

Air New Zealand CEO Rob Fyfe says the move is part of the company’s strategy to develop scale and reach in the region.

“The Tasman alliance with Virgin Blue was the first step in this strategy. This investment cements the emerging relationship between our two airlines and demonstrates the confidence we have in Virgin Blue both as an entity and as a partner for Air New Zealand,” he says.

Fyfe says Air New Zealand will not seek representation on the Virgin Blue board for at least six months.

Virgin also recently signed a 10-year ‘strategic alliance’ with Western Australia-based Skywest Airlines to service regional areas.

Virgin CEO John Borghetti (pictured) says the first four Virgin-branded turbo prop aircraft are set to arrive mid-2011 and will be operational by the end of the year, with excellent fuel efficiencies to keep prices low.

“The combined strength of our networks, along with the additional capacity we will deliver with new aircraft, will provide travellers with more frequent flights, better schedules and competitive fares,” he says.

“The partnership will see Virgin Blue expand its reach throughout regional Australia and will allow us to access untapped resources in regional Australian markets, in particular the booming fly-in fly-out resource sector market.

“The leasing agreement means that Skywest will not be exposed to the capital investment of owning the aircraft and will be a service provider and code-share partner.”

The company has had a nightmare PR run after its reservations system collapsed in September 2010, stranding travellers and causing lengthy delays.

Close to $40 million has been wiped off Virgin’s profits, due to floods and cancellation of flights. The airline announced that net profit for the six months to December 31, 2010, was now likely to be in the range of $23-26 million.